Annual report pursuant to Section 13 and 15(d)

Net Loss Per Share

Net Loss Per Share

12 Months Ended

Dec. 31, 2022

The Company computes earnings per share (“EPS”) using the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings.

The Company had only common stock outstanding during the year ended December 31, 2022. The Company had two classes of stock outstanding during the year ended December 31, 2021; common stock and preferred stock. The convertible preferred stock outstanding during the period converted to shares of common stock on a 1-for-0.42 ratio (ratio adjusted for the reverse stock split) and had the same rights, preferences, and privileges as common stock other than it held no voting rights. In April 2021, Armistice converted the remaining 1,257,143 shares of convertible preferred stock into 523,810 shares of Avalo’s common stock. Under the two-class method, the convertible preferred stock was considered a separate class of stock until the time it was converted to common stock for EPS purposes. Therefore basic and diluted EPS is provided below for common stock for the year ended December 31, 2022, and both common stock and preferred stock for the year ended December 31, 2021.

EPS for common stock and EPS for preferred stock is computed by dividing the sum of distributed earnings and undistributed earnings for each class of stock by the weighted average number of shares outstanding for each class of stock for the period. In applying the two-class method, undistributed earnings are allocated to common stock and preferred stock based on the weighted average shares outstanding during the period, which assumes the convertible preferred stock has been converted to common stock. The weighted average number of common shares outstanding as of December 31, 2021 includes the weighted average effect of the pre-funded warrants issued in connection with the underwritten public offering that closed in January 2021, the exercise of which requires nominal consideration for the delivery of the shares of common stock (refer to Note 11 for more information).

Diluted net (loss) income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock units, which are included under the “treasury stock method” when dilutive; and (ii) common stock to be issued upon the exercise of outstanding warrants, which are included under the “treasury stock method” when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In periods of net loss, losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company’s losses.

The following tables set forth the computation of basic and diluted net loss per share of common stock for the year ended December 31, 2022, and common and preferred stock for the year ended December 31, 2021 (in thousands, except per share amounts):


	Year Ended
	December 31, 2022
	Common stock

Net loss	$	(41,658)
Weighted average shares	9,408,477
Basic and diluted net loss per share	$	(4.43)


	Year Ended
	December 31, 2021
	Common stock				Preferred Stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Allocation of undistributed net loss	$	(82,849)	$	(27)	$	(1,500)	$	—
Weighted average shares	8,324,038		8,324,038		361,644		361,644
Basic and diluted net loss per share	$	(9.95)	$	0.00	$	(4.15)	$	—

The following outstanding securities at December 31, 2022 and 2021 have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive:


	December 31,
	2022	2021
Stock options	1,428,867	1,137,612
Warrants on common stock1	366,990	367,189
Restricted Stock Units	—	937

1 The weighted average number of common shares outstanding as of December 31, 2021 includes the weighted average effect of the 139,747 pre-funded warrants issued in connection with the underwritten public offering that closed in January 2021 because the exercise of such warrants requires nominal consideration ($0.012 per share exercise price for each pre-funded warrant). During 2021, the holder exercised 25,740 of the pre-funded warrants. As of December 31, 2022, the weighted average number of common shares outstanding included the weighted average effect of the remaining 114,007 pre-funded warrants outstanding. Therefore, these pre-funded warrants are not included in the table above.